A multi bagger is an investment that delivers exponential growth in value over a period of time. Typically, an investment that doubles its value is called a double bagger. Investments that more than double their value are referred to as multi baggers.
The Multiplication Magic
An investment that delivers a value equivalent to twice its original cost (a double bagger) within a period of say three years gives a compound annual growth rate (CAGR) of 45%. But, even if the investment value multiplies 10 times over a period of 10 years (a multi bagger), the CAGR works out to 26%.
Finding a Multi Bagger
Typically, a small cap or mid cap stock that has the potential to become a future large cap stock could turn out to be a multi bagger. These investments cannot be identified at purchase stage. Selection of investments should be made after a rigorous evaluation process and based on fundamental strength. In the future, as the company grows and the investment matures, it may turn out to be a gold mine.
Long Term Investment
An investment would ordinarily turn into a multi bagger only if it is held for a period of 5 years or more. Long term investments in stocks with good performance track record and future growth potential have the best possibility of turning into multi baggers.
